Home News PHI lost $M over money kept in ‘non-interest bearing’ account– management says...
– management says no breaches
The forensic audit into the Property Holdings Inc (PHI) has revealed that the agency lost interest amounting to over $10 million after money was placed in a ‘non-interest bearing’ account.
This was found by Auditor Charles Sugrim who audited PHI over the period October 5, 1999 to May 31, 2015. PHI was established in 1999 with the purpose of managing or disposing of property owned by Guyana Stores Limited (GSL), which at the time, was a property of the State and was under the control of the National Industrial and Commercial Investments Limited (NICIL). GSL had transferred 24 of its “non-core properties” to PHI, which was used to capitalise PHI. However, when GSL was sold, PHI was removed from its ownership.
According to Sugrim, while the investigation revealed that PHI’s management made professional business decisions, the management of the company’s finances was unsatisfactory and poor. He pointed out that “the company lost net interest income of more than $10,000,000 over the period December 2003 through November 2010.”
The auditor further noted that escrow accounts were not interest bearing in three of the five cases found. He pointed out that large balances were kept in the checking account from December 2003 to December 2010, which resulted in lost interest of approximately $13,600,000 and lost withholding taxes to the Government of approximately $2,700,000.
However, in response, PHI’s management explained that “the state of finance management is a management style/discretion and judgment.” Moreover, the agency pointed out that it must be recognised that no law or accounting standard was breached in the period identified.
But Sugrim posited in the report that while no accounting standards were breached by placing a company’s funds in a non-interest bearing account, it is imperative to understand that one cardinal principal function of management is to maximise the return of the shareholders.
“The fact that tens of millions of dollars were kept in a non-interest bearing account for a number of years does not lend support to that principle,” the auditor highlighted.
To this end, he recommended that the entity be more prudent in its cash management. However, it was noted that as of December 2010, this recommendation was implemented.
Moreover, the auditor report states that in order to save cost for PHI, a decision was taken by the entity’s Board to execute current valuation of properties before public tenders were advertised but this has not happened in numerous cases, as PHI relied on the bid price as the source of current valuation.
In this regard, Surgrim recommended that the current valuation of each property be obtained before any tender is advertised. However, the management of PHI in their response stated that the recommendation is a standard practice despite the suggestion or implication that this is not the case.
Management pointed out that the audit report does not record if any sales occurred without a valuation prior to tender and further submitted that it conducted valuations in 1995 and later in 1999. Thereafter, PHI noted, it was the general practice to conduct valuations prior to sale, save and except, a couple of instances when the valuations were conducted after the process but prior to the completion of a sale.
“Based on the high cost of valuations, which were generally tied to the value, regular valuations were not cost effective. Further, the various boards recognised that valuations were not market valuations in the strict sense, as valuators did not have much information on appropriate comparables. The Privatisation Board felt that the compelling factor was what a willing buyer and willing seller would buy and sell at based on a competitive process. Given that this was carried out for the most part, the fairness of the price was best determined this way,” Management responded.
Moreover, Sugrim outlined that during the audit he detected the practice where the agency would award properties to the second and third highest bidders in cases where the first, and second highest bidder withdrew their offers.
“PHI did not consider re-tendering of properties when the highest bidder withdrew. In some cases there were prior bids for the same property at a higher price,” the auditor stated, while suggesting that PHI should exercise more caution in offering the property to the second highest bidder. He also recommended that consideration be given to re-tender the property when the highest bidder withdraws.
In response, PHI’s management explained that the decision to select the second highest bidder did not and does not rest with the entity but with Cabinet on advice of the Privatisation Board. “No bidder has a binding commitment or bid bond, until a contract is executed,” they justified.
Furthermore, the auditor found that there where instances where the first (and second bidders in one case) withdrew their offers, and the property went to the second (or third) bidders, thus creating a significant difference between the highest bid and sale price as the tendered bid price was reduced in the final sale price.
Sugrim strongly recommended that whenever such a situation recurs, management should re-advertise the property stating a minimum acceptable offer price.
“It is recommended that this practice cease immediately. If this recurs, the property should be re-tendered to the public,” the audit report stated.